A unit trust is formed when investors invest their savings to form the trust and it gets dissolved when investors withdraw money from it. By participating in a unit trust, investors accrue greater benefits from their investments than what they would have earned from direct investment in company shares. Investment in unit trust comes with higher financial security and greater economies of scale. Investment schemes like unit trusts encourage investors to participate in equity, derivatives, debt, and money markets. Be it a regular income growth or capital growth, unit trust takes care of all types of investment objectives. Unit trusts are preferred due to their easy affordability, and excellent liquidity.
Features of unit trusts
Unit trusts are characterized by following features:
1. These are open-ended schemes of investment
2. Each unit trust scheme comes with distinct set of investment objective
3. These trusts are designed as per the financial limitations of investors
4. Investors investing in unit trusts have ownership in the trust assets
5. Unit trust is managed by a fund manager, who maintains the trust and tries to improve profit level
Unit trusts can be categorized into two different units as follows:
1. Accumulation units are those that accumulate interest and dividend within the trust and add value to the trusts fund.
2. Distribution or income units on the other hand, distribute dividend or interest among the unit holders on a previously fixed date.
3. Creation and cancellation prices of a unit trust do not match with the offer price and bid price at all times. Profit that is earned from the difference between creation and cancellation prices of unite trusts is termed as box profit.